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4 min read

WEBINAR - Government Contract Changes and Modifications

sign that says changes and modifications in government contracting

Joel Hamner and Stephanie Siler, accomplished attorneys at Whitcomb PC, are currently delivering an insightful presentation on the intricate world of government contracts. They delve into the various types of contract changes that can occur, including directed, constructive, and cardinal changes. Directed changes, which can be unilateral or bilateral, are formally ordered by the government, while constructive changes arise when the government instructs the contractor to perform work outside the contract's original scope without explicit direction. On the other hand, cardinal changes represent a complete departure from the contract's initial parameters.

The importance of promptly identifying and addressing these changes is strongly emphasized by the presenters, as resolving them early on can help avoid potential litigation. Strategies for documenting and resolving changes, such as the request for equitable adjustment (REA) process, are also keenly discussed. Joel and Stephanie further explore the topic of directed changes, highlighting that each type of government contract has its own specific changes clause. Drawing, design, specification, packaging, delivery, and performance-related alterations are just a few of the changes that can be accommodated through this clause. Recognizing changes and engaging in bilateral negotiations are key components stressed by the presenters.

During the presentation, a question is raised regarding the rights of subcontractors, prompting Joel to explain that if the changes clause is extended to them, they possess the same rights as the prime contractor. He then delves into the changes clause applicable to fixed price contracts, clarifying that contractors can seek an equitable adjustment if they can demonstrate that a change has occurred and that they have incurred costs as a result. The significance of comprehensive documentation to bolster an equitable adjustment claim is also emphasized.

Joel and Stephanie also touch upon the possibility of contractors being entitled to additional costs when contract changes arise. They underscore the importance of refraining from incurring costs until explicit direction and approval are received. By exercising caution and following proper procedures, contractors can protect their interests and potentially recoup additional expenses.

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Joel dives into the intricacies of deductive changes versus partial termination for convenience, shedding light on how the latter can potentially lead to greater cost recoupment. Stephanie, on the other hand, delves into the realm of constructive changes, which arise when the government demands performance that exceeds the contract's requirements. She proceeds to outline five distinct types of constructive changes, including contract interpretation, defective specifications, government interference, failure to cooperate, and superior knowledge. Joel and Stephanie place a strong emphasis on the significance of comprehending the language of the contract, particularly when it comes to ambiguity. They break down the two main types of ambiguity - patent and latent - with patent ambiguity being evident from the contract's language and latent ambiguity surfacing during the contract's execution. The duo also touches upon the crucial matter of intellectual property and data rights, underscoring that contractors may be entitled to compensation if the government demands data rights beyond what was initially agreed upon in the contract. Furthermore, Joel and Stephanie explore a range of contract changes, including defective specifications, government interference, and superior knowledge. Defective specifications crop up when the government provides precise measurements or requirements that hinder the contractor's ability to perform as expected. Government interference takes place when the government fails to cooperate or obstructs the contractor's progress. Lastly, superior knowledge refers to the government withholding vital information that is crucial for the contractor's performance. Joel and Stephanie stress the utmost importance of meticulously documenting these changes to bolster the chances of a successful claim. Delving deeper into the topic, Joel and Stephanie discuss three types of contract changes: directed changes, constructive changes, and cardinal changes. Directed changes are explicitly ordered by the government in writing, entitling the contractor to an adjustment in the contract's price or delivery schedule. Constructive changes, however, are more challenging to identify as they occur without a written order from the government, often arising due to contract ambiguities, limited knowledge, or practical considerations. Cardinal changes, on the other hand, deviate materially from the original contract and are regarded as breaches of contract.

Joel and Stephanie stress the crucial role of meticulous documentation in successfully claiming for these types of changes. They delve into a detailed discussion on the various types of contract changes and provide valuable insights on how to identify them. Furthermore, they highlight the fact that a constructive change can result in additional costs for contractors, and they emphasize that contractors are entitled to a cost increase for changes brought about by the initial change. It is important to note that the determining factor for whether a change is classified as cardinal is not solely based on costs, but rather on whether the services align with the original agreement. Joel and Stephanie also raise important red flags to watch out for, such as extending the period of performance for several services beyond 12 months or changes to an IDIQ delivery order that fall outside the scope of the master contract. They also bring up the notification requirements outlined in the changes clause. Lastly, they discuss common issues that surface in different types of contracts, including changes to specifications, quantity, or inspection requirements for manufacturers; government-caused delays or alterations to drawings for construction contracts; and additions or deletions of work for service contractors.

The speakers also touch upon the recoverability of professional service fees under an REA, noting that interest is typically not recoverable. Joel argues that REAs and CDA claims are closely aligned, and he does not believe that REAs are necessarily more customer-friendly. They delve into the various FAR clauses that grant contractors the right to seek adjustments, pointing out that some clauses may contain language that restricts or disallows claims. Joel further argues that an REA is not the exclusive remedy and highlights exceptions to the notification requirements. Moving on, the speakers discuss the requirements for submitting an REA, clarifying that certification is not necessary unless it is a Department of Defense (DOD) contract. They stress the importance of including all relevant facts underlying the request for adjustment and specifying the amount being requested. It is important to note that the amount requested is not set in stone and can be adjusted if additional facts come to light. The speakers advise that an REA should be written in a polished and robust manner, presenting a concise factual narrative and a strong legal argument. They also emphasize the significance of including supporting documentation, such as emails from the contracting officer. Additionally, they discuss the importance of following up on the status of an REA, as the government is not obligated to respond within a specific timeframe. If the contracting officer denies the REA, the next step would be to file a CDA claim. The speakers underline the importance of memorializing any modifications agreed upon after a successful REA and being mindful of settlement and release language. They address a question regarding consulting fees and explain that, under an REA, a contractor may be entitled to certain special service costs, though representation in a dispute is classified differently and does not fall under the same type of legal representation. They mention the Equal Access to Justice Act, which could potentially allow for the recovery of some costs, but note that litigation costs are typically borne by the parties involved. In response to a question about admission to practice, the speakers explain that while most government contracting practices have a national reach, representation in court requires admission to the specific court. They advise consulting each state's rules for more specific questions. Finally, they answer a question about handling a federal project delay due to COVID-19, suggesting that the questioner carefully review their subcontract terms and evaluate how the delay presented itself.